Digital royalty rates under the microscope in the USA

June 2014

Artists, record labels


Elsewhere in the USA, A2IM, the organisation that represents indie record labels have criticised Sony and Universal Music Group in “the fight over digital dollars”. The American Association of Independent Music, whose artists include Mumford & Sons, Taylor Swift and Adele, argues that Universal and Sony are in effect a de facto “duopoly”— and use their dominance to grab a disproportionate share of streaming music royalties. Streaming services just have to deal with Sony and UMG, who control well over 50% of the recorded music sector (and yes – EU and US regulators let that happen!). The group, which represents around 325 indie labels in the US, has been lobbying lawmakers to take a fresh look at music licensing and outlined its issues in a filing submitted to the federal Copyright Office: The New York Post say that A2IM contends that the streaming music business “is essentially a zero-sum game: The music majors use their distribution muscle to extract the lion’s share of dollars from services such as Spotify and Pandora, leaving the indie labels to settle for whatever is left”.

SoundExchange is making a push to change how pre-1972 recordings are treated is the U.S, The Washington D.C. based collection society for digital performance royalties has launched a multi-pronged campaign called Project72 – aimed at changing the federal law that excludes pre-1972 sound recordings from coverage under statutory licenses used by many digital music services. The campaign features a microsite and an advertisement –  a call to digital radio services to “pay for all the music they play” in the form of an open letter from over 70 artists including B.B. King, the Supremes, members of Steely Dan, the Beach Boys, Roseanne Cash, Martha Reeves, Cyndi Lauper and Al Green. the RESPECT Act was introduced by Rep. John Conyers (D-MI), ranking member of the House Judiciary Committee, and Rep. George Holding (R-NC). The bill would place pre-1972 sound recordings under federal law. Conyers stated the bill would give “a fair shake” to legendary artists and their lesser-known backing musicians. SoundExchange President and CEO Mike Huppe told Billboard the issue with pre-1972 royalties amounted to “a real and urgent problem that’s happening right now.”

And the Recording Industry Association of America has responded to the US Copyright Office’s call for comments on a “Music Licensing Study: Notice and Request for Public Comment,” by explaining why terrestrial radio should pay more in royalty payments.

Setting the current US system in a historical context (in particular the fact that terrestrial radio stations are exempt from paying royalties for broadcasting sound recordings) the RIAA says “We propose to replace the current overlapping musical work licensing systems with a single, simple and efficient system that incorporates marketplace royalty payments. As described below, such a system would have many potential advantages, including: (1) market rates for publishers and songwriters; (2) more consumer choice through easier funding and development of innovative services; (3) more revenue for services and higher royalties for creators due to savings from simplified licensing procedures; (4) improved accuracy of payments and transparency for publishers and songwriters; and (5) viability for ASCAP and BMI, and the revenue streams they administer.”

And on the matter of who gets paid what from any revenues from downloads ….. Universal have now responded to the multiple lawsuits it is facing from its own artists over its controversial policy of treating a download (or even streaming income) as a ‘sale’ rather than licensing income – attracting the far lower ‘per unit’ royalty from a sale. The Hollywood Reporter explains that the new motions to dismiss from UMG “stems from a 2010 appellate ruling in F.B.T. Productions v. Aftermath that suggested that record labels should be treating digital download income off of venues like Apple’s iTunes as “licenses” rather than “sales.” The difference could mean a lot of money because under typical licensing or leasing provisions of artist-label contracts, about 50 percent of collected revenue gets handed over to artists. Under sales provisions, it’s usually not more than 15 percent – if they are lucky.” UMG says that the F.B.T precedent is wrong and that a sale on iTunes should be like any other sale of physical product – and that in fact when the this all started UMG were generous to artistes as it waived its ‘packaging deduction’ for download sales – and that many artists and their representative hailed the new royalties model – albeit one based on the old – as preferable to wholesale piracy. A few artist attorneys are said to have brought forward the argument that these downloads were “licenses,” an interpretation which Universal Music rejected. Then came the F.B.T. decision, and subsequently “the firestorm of litigation” with Chuck D. of Public Enemy, Rick James (by way of trust), Dave Mason of Traffic, Whitesnake, Andres Titus of Black Sheep, Ron Tyson of The Temptations and Bo Donaldson all still ready to challenge Universal Music’s accounting. UMG have put up numerous other arguments rejecting the claims:  that lawsuits alleging that consumers were hurt by royalty arrangements are invalid because consumers aren’t aware of these dealings; that some of the artists suing under Californian law had contracts that were governed by New York law; that 1970s singer Bo Donaldson couldn’t sue because of an agreement with his former bandmates that majority participation was required to litigate; and Ron Tyson of The Temptations wasn’t party to the crucial contracts because he didn’t join the group until 1983. The the article on THR is well worth the read.

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